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Skyrocketing valuations, “megarounds” and a gold rush mentality may be setting investors up for a fall

European startups are raising more money than ever before, according to reporting in Bloomberg this week.

The EU is producing a class of tech companies with valuations comparable to peers in the U.S. and Asia. But after a record-breaking start to 2021, some analysts are starting to worry that the momentum just cannot last.

For example: virtual events business Hopin more than doubled its valuation in four months, raising cash at $5.65 billion in March. Klarna Bank AB, the EU’s biggest startup, reached $45.6 billion in its latest funding round. This is more than four-times higher than last year.

U.K. financial technology startup Revolut Ltd. has more than tripled its 2020 valuation of $5.5 billion, sporting a round that would raise new funds at a more-than $20 billion value.

Is this tech momentum sustainable?

There’s a “little bit of a tech bubble,” Martin Davis, the chief executive officer of London-listed venture capital firm Draper Esprit Plc, said in an interview with Bloomberg. “That’s not going to last forever.”

Davis has seen his company’s portfolio jump 51% in the past 12 months through March. This is compared to only 10% in the prior year. It seems that a consumer shift online during the Covid-19 pandemic combined with low interest rates to push investors further toward tech in search of attractive returns.

“Some of these valuations are absolutely eye-watering. That has been the case in the U.S. for a number of years and it’s playing catch-up here,” said Erin Platts, head of Europe, Middle East and Africa at Silicon Valley Bank. “The velocity is what scares me a bit, even more so than some of the numbers.”

Fears surrounding fast growth are nothing new. And the tech industry has produced good returns for decades, said Lars Jornow, a partner at Swedish venture capital firm EQT Ventures. Angel investors who put cash in the right company can see “extremely fast valuation upticks,” he said.

“Four or five years ago, people said valuations were too high. I’m very bullish. The tech markets will continue to produce,” Jornow said. “It may be that the valuations will be adjusted at some point, but tech has been in a bull market for two decades.”